Lecture on Pakistan's Financial Mismanagement: Recent Borrowing and Economic Consequences

Jul 11, 2024

Lecture on Pakistan's Financial Mismanagement: Recent Borrowing and Economic Consequences

Overview

  • Pakistan's recent financial activities highlighted by a new report.
  • The country borrowed 3.2 trillion rupees (~$11.5 billion) in 45 days.
  • Borrowing was done domestically at high interest rates.

Breakdown of Borrowing

  • Period: Between May 15th and June 28th
  • Amount: $11.5 billion (~quarter of a billion per day on average).
  • Comparable to the entire amount borrowed in the previous financial year (ending 2023) but done in just 45 days.

Implications and Accounting Tricks

  • Fresh loans taken after mid-May, post declaration of last financial year's expenses.
  • Loans will not be registered until mid-2025, misleading public and creditors.
  • Aim: Conceal the true level of indebtedness.

Use of Bond Market

  • Pakistan also taps into the bond market, specifically Treasury bills.
  • Treasury bills (Government Bonds): Short-term lending (3, 6, or 12 months) with interest.
  • Comparison: Pakistani Treasury bill return ~20% vs. India's ~5%.

Reasons for High Yield

  • Government's desperation for money.
  • Currency volatility (Pakistani rupee almost half its value 3 years ago).

Economic Impact

  • Recent budget aims to increase tax revenue by over 40%, impacting ordinary citizens.
  • New IMF loan negotiations.
  • IMF Conditions: Further tax hikes, potential 45% tax rate on agricultural income.

Conclusion

  • Example of severe economic mismanagement.
  • Citizens will bear the long-term consequences.

Additional Remarks

  • The lecture forms part of a broader news coverage, emphasizing unfiltered reporting from diverse perspectives.